Australians who are planning to build their homes from the ground up in Victoria might end up spending more for vacant land over the next months

Raine & Horne Land Victoria director Harmandeep Dhillon said the current absence of plans from the state government to release new residential land could send prices jumping by as much as 20% over the next year amid high demand from upgraders and first-time buyers.

"The trouble is developers can't find enough land, particularly in Melbourne's northern corridor, to meet this demand," he said.

"The shortage means vacant land values are up 18% to 19%, while this situation is amplified by a 25% increase in the cost of some building materials such as timber."

Land prices up as supply remains tight

Land costs are currently at $950 to $975 per sqm, a substantial rise from last year when costs hovered around $830 per sqm to build.

Raine & Horne Land Victoria recently closed land sales that reflect the current strength of the market in terms of prices.

For instance, the agency sold a 12-hectare property in Rockbank, an outer suburb located 29km west of Melbourne's CBD, for $22m.

The agency also recently sold a 7.5-acre land parcel in Melbourne's southeast for $8.6m.

A recent report from the RPM Real Estate Group showed that 2,620 gross lot sales were recorded in Melbourne and Geelong, representing a 3% increase in August.

The report also showed that the take-up for land continued to outpace supply.

In fact, the total land supply in Melbourne was down by 7% in the month, supporting the 1% increase in median lot price to $330,000.

Interestingly, the per sqm price also increased after the median lot size shrank by 2% t0 379sqm.

The ban on inspections has shifted demand to the new home market and has resulted in healthy gains in the land market, according to the report.

Lack of infrastructure drags land releases

Mr Dhillon said the recent lockdowns did not help ease the demand for land unlike last year.

"When COVID hit last year, no one wanted to buy land and were a bit spooked. But this year, people realise that once borders and markets reopen, prices will start to skyrocket again, especially due to the supply constraints," he said.

Even with this high demand for vacant land, the state government is unable to release new ones given the lack of infrastructure projects.

"Councils can't keep pace with demand for services created by new housing developments," Mr Dhillon said.

"There are also broader planning concerns with the Victorian Government committed to protecting Melbourne's green wedges between new developments."

This, Mr Dhillon said, is ironic, given that many farmers on Melbourne's outer fringes are keen to sell their properties as they brace high land tax levies.

"The council rates are another issue that is forcing many to consider selling their farmlands but due to a lack of infrastructure they are unable to sell," he said.

Top Suburbs for Land Prices

September 2021 data from the Real Estate of Victoria (REIV) showed that the median price for land has hit $490,000 for metro Melbourne and $240,000 for regional Victoria. 

REIV also released the top suburbs where land prices have grown significantly over the past year. 

Data Source: REIV

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Photo by naobim on Pixabay.